Price Fixing Claims Against Transpacific Air Carriers Dismissed

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Although a federal district court in San Francisco has determined that a conspiracy to fix the prices of transpacific air passenger travel was plausibly alleged, a motion to dismiss the Sherman Act claims based on the Foreign Trade Antitrust Improvements Act (FTAIA) was granted.

The action was brought on behalf of a class of individuals who purchased air transportation services from one or more of the 26 defending airlines that included at least one flight segment between the United States and Asia/Oceania.

The plaintiffs alleged that, beginning around January 2000, the airlines agreed, and began, to impose air passengers air fare increases, including fuel surcharge increases, that were in substantial lockstep both in their timing and amount. They sought to recover overcharges associated with flights originating in Asia.

Plausible Conspiracy

The plaintiffs specifically alleged that the defending airlines reached various agreements to coordinate pricing. They detailed certain communications between the airlines which supported an inference of conspiracy.

Among other things, the plaintiffs alleged that

(1) The defendants participated in various code-sharing agreements and professional alliances “reinforce and facilitate the conspiracy”;

(2) There was a “pattern of identical or virtually identical pricing by [D]efendants’ closest competitors on routes between the United States and Asia and Oceania”;

(3) The defending airlines charged “identical fuel surcharges for passenger traffic from Hong Kong, including to the United States”; and

(4) The U.S. Department of Justice, the European Commission, and other competition authorities were investigating price fixing of passenger and cargo fares.

Foreign Trade Antitrust Improvements Act

The court ruled that it lacked subject matter jurisdiction over the claims of foreign injury. The FTAIA limited a court’s subject matter jurisdiction over Sherman Act claims involving foreign commerce, according to the court. Under the FTAIA, the Sherman Act does not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless the conduct had a direct, substantial, and reasonably foreseeable effect on domestic commerce, and such effect gives rise to the plaintiff's claim.

The challenged conduct did not fall within the “import trade or commerce” or “domestic effects” exception to the FTAIA. The plaintiffs' price fixing claims (1) did not involve import commerce; and (2) did not have domestic effects that give rise to the complaining individuals’ foreign claims.

The term “import” generally denoted a product or service that had been brought into the United States from abroad. It was too great a leap to equate air passenger travel with the importing of people, or to characterize air passengers as a product or service.

Domestic Effect, Harm

Moreover, the complaining individuals' allegations of domestic effect and, indeed, their overall theory of harm, were insufficient, the court decided. While a direct effect on U.S. trade or commerce could be based on the fact that U.S. residents and citizens paid more for air passenger transportation as a result of the alleged conspiracy, the complaining individuals could not establish that the domestic effect actually caused the foreign injury.

The foreign injury was the result not of the domestic effect, but of the global price fixing conspiracy that caused the domestic effect. The domestic effects exception required proximate causation. The plaintiffs contended that “the prices for travel originating in foreign countries and travel originating in the U.S. are inextricably bound up with and dependent on each other”; however, “bound up” was not proximate causation.

The fact that the plaintiffs' foreign injuries were not caused by the domestic effect of the global conspiracy also prevented them from establishing standing. Their claims for foreign injuries were not the type of injury Congress intended to prevent through the Sherman Act, in the court's view.

The airlines, individually and jointly raised a number of other bases for dismissal. The court rejected assertions that the act of state doctrine, state action doctrine, and the implied preclusion doctrine barred the price fixing claims.

The May 9 decision, In Re Transpacific Passenger Air Transportation Antitrust Litigation, will appear at 2011-1 Trade Cases ¶77,446.